GIS Beats Fiscal 3Q18 Earnings Estimate, Outlook Disappoints



Earnings exceed estimates

General Mills (GIS) reported better-than-expected fiscal 3Q18 earnings on March 21, 2018. General Mills’s adjusted EPS (earnings per share) of $0.79 beat analysts’ expectations of $0.78 per share and increased 9.7% on a YoY (year-over-year) basis.

The company’s EPS returned to a growth trend after marking declines in the past two quarters. However, a tepid outlook overshadows the company’s improved bottom-line performance in fiscal 3Q18.

General Mills’s (GIS) bottom line benefited from improved pricing and mix. Favorable currency rates, a decline in advertising expenses, and lower tax rates also cushioned the company’s earnings in fiscal 3Q18. A lower outstanding shares count supported its bottom-line growth rate.

However, significant margin headwinds stemming from increased input cost inflation and higher transportation costs due to carrier constraints remained a drag on the company’s growth.

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Outlook lowered

General Mills (GIS) lowered its adjusted EPS forecast as higher-than-expected margin headwinds are expected to hurt its EPS growth rate. The company expects its EPS to remain flat or rise 1.0% on a constant currency basis, down from its earlier expectation of an increase of 3.0%–4.0%.

Increased supply-chain costs driven by inflation in commodities, rising transportation costs, and rising operational expenses are expected to take a toll on its margins and its EPS. However, favorable pricing and mix, a lower share count, a decline in tax rates, and increased cost savings from its global sourcing program are expected to drive its bottom line.

Analysts expect the margins for other packaged food manufacturers to take a hit from higher logistics costs and inflation in input product prices.

The profitability metrics for Kellogg (K), J.M. Smucker (SJM), Conagra Brands (CAG), Mondelēz (MDLZ), Kraft Heinz (KHC), and Hershey (HSY) are expected to take a hit from increased manufacturing and transportation costs.


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